This past week Ron and Ed welcomed Robbie Kellman Baxter, author of The Forever Transaction. We talked about, of course, SUBSCRIPTIONS! Robbie's customers include Netflix, the National Restaurant Association, and The Mail Newspapers in the UK, as well as dozens of Silicon Valley SaaS and consumer subscription companies.
A Bit More About Robbie
Robbie Kellman Baxter is best known as the creator of the popular business concept Membership Economy. She is the founder of Peninsula Strategies LLC, a management consulting firm, as well as the author of the bestselling book, "The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue" . She coined the popular business term “Membership Economy", which is now being used by organizations and journalists around the country and beyond. Before starting Peninsula Strategies in 2001, Robbie served as a New York City Urban Fellow, a consultant at Booz Allen & Hamilton, and a Silicon Valley product marketer. She has an AB from Harvard College and an MBA from the Stanford Graduate School of Business.
Ed’s Questions: First Segment
Welcome to The Soul of Enterprise: Business in the Knowledge Economy, sponsored by Sage, transforming the way people think and work so their organizations can thrive. I’m Ed Kless with my friend and co-host, Ron Baker, and folks on today's show, we are thrilled to have with us Robbie Kellman Baxter. Hey, Ron, how's it going?
Ron: Good, Ed. I'm looking forward to this. I've read Robbie's books this year, so I've been marinating in her ideas.
Ed: Locked and loaded for today. I'm sure so let me let me bring her on. First. We'll get the Bio out of the way. Robby Kellman Baxter is a strategy consultant helping companies develop and optimize membership models and subscription pricing, has deep expertise in subscription-based and SAAS models, and the membership economy. She brings over 20 years of strategy, consulting and marketing expertise to Peninsula Strategies, her strategy consulting firm, focused on helping companies leverage the subscription model, the digital economy, and freemium, to build deeper relationships with customers. She is the author of The Membership Economy: Find Your Super Users, Master the Forever Transaction, and Build Recurring Revenue, 2015 [and, The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave, March 2020. Robbie coined the term “membership economy” and it is now being used by organizations and journalists around the world. Thanks so much for being with us today Robbie Kellman Baxter.
Let's start out with the basics. What's the membership economy?
So talk about that difference in your mind. What is the difference between having members versus just having customers?
I was reminded when I started hearing the term, there was a commercial, I believe in the 70s and 80s, for American Express, and the tagline was “membership has its privileges.” I'm sure you recall that. And that came to mind. And I think that's a great thing to keep in mind, right? Is, what are the privileges that you're developing? And you call it the difference between having the membership as a product versus membership as the mindset?
It is really loaded, but it's a good word. I think it's an important word. One of the things that Ron and I have talked about for years and years and years is that in order to make any change inside your organization, as Werner Earhart says, all transformation, all change is linguistic. So the language you use is very important. And it was funny, because earlier today I was talking to somebody who has a membership organization. And we came to this very same conclusion: you're treating your membership as a product, not as this notion of a relationship. And have you seen, I'm gonna kind of go sideways on this, Ryan Hamilton's appearance on the Stephen Colbert show, where he talks about trying to cancel his cancel his gym membership.
He's got a great line in the routine where he says “If you have to write a letter to cancel something in 2020, you're being bullied.”
And he said at the end, he says, “I actually had to walk by the gym to go to the CVS to buy the envelopes. But isn't that interesting, the other example that I've heard you use, Ron and I have used it, the Hotel California, the worst membership experience of all of our lives, especially if you grew up in the 70s, was the Columbia House Records, which was literally the Hotel California because I bought the Eagles album.
And they wouldn't let me, they kept sending me stuff. And, it's so funny that I think we've had to make this adjustment; they had some really good ideas. But what is it that we can do to adapt some of those great ideas that Columbia House and other places had, but make them with the Cancel button front and center?
It's horrible. So, is subscription membership a pricing tactic? Or is it a strategy?
So I’m curious, do you use the subscription membership model for all of your pricing? Like in the work that you do, I noticed that you do consulting, you obviously do coaching, which I would imagine is subscription?
The industry that I can come from, which is Sage, the organization that I work for. We sell accounting software. And this is one of the big conversations inside the organizations right now who used to sell what we call on-premises software, and then have now moved to Software as a Service. The software is now priced on subscription, but their services are not. And there is similar to your thing, a big-bang upfront, with this kind of ongoing thing. That said, I'm trying to coach my people to get past that and really look to see if there is a way that you can make this subscription and take the loss leader of the big-bang up front? So what are some of your thoughts on that?
I think that's very true, especially in the industry that I'm talking about, because nobody changes their accounting system because they think it would be fun, right? Hey, let's do this, that would be fun. We know that they're doing it because they're in a world of hurt someplace, like their current system is significantly deficient in some way. Because really, with accounting systems, and I hate to say this as someone who works for a company that does this, debits equal credits, all systems, ultimately is what those things can do. We are already up to our first break.
Ron’s Questions: Segment Two
Welcome back, everybody. We're here with Robbie Kellman Baxter, the author of The Membership Economy and The Forever Transaction. Robbie, on your Membership Economy book, you talk about the move from customer service to customer success. There seems to be a customer success department in a lot of subscription-based businesses. You also talk about how membership is an attitude, whereas subscription is more like a financial arrangement. Because with a membership, you're committed until you cancel, right? I mean, you have to actively break up to cancel. And Ed and I think about this in terms of “choice architecture,” and psychology. There's just something deeply different, whether you call it membership or subscription, about joining something, versus just entering into a transaction.
The peace of mind. And the convenience, like you say, I think they're completely undervalued. I'm a recovering CPA, and I work in the accounting, legal, advertising space with professional firms. And I'm trying to get them to move to this. And I realize that you're talking about this in the book, this all you can eat option, but like concierge doctors, or direct primary care doctors, I do think these firms could set up, hey, whatever you need, you're covered. Anything we’re capable of doing under our roof, you are covered. If you get audited, you know just like a doctor, whatever you need, stitches, broken leg, whatever, they'll do it, you're covered, and that just swaddles the customer in this peace of mind and convenience that they will pay dearly for.
We talked about, and I know you’ve spoke already at the Professional Pricing Society, Ed and I are faculty members there. So we've been teaching value pricing for years, and value pricing was all about, and you say this in one of the books, pricing the customer—it’s the airline model, your pricing each customer, not the seats. The customer, whether they are business or leisure, when did they buy their ticket, all those types of factors. And in the subscription model, what's different is your pricing the relationship. I think about the Porsche Drive program, I'm not subscribing to a car, I'm subscribing to Porsche. That's a big, big difference isn’t it?
And 80% of the Porsche Passport members are new to the brand, which is phenomenal. They did rebrand it, by the way. It's Porsche Drive, not passport. I'm bummed because I thought Passport was great marketing. One objection we get from firms, and I'm sure you hear this all the time, is what about that one-off service? You know, I think you call them Ala carte services? And I'm like, Okay, well, you could carve out and price that separately. But if you're constantly doing that, why can't you just bake it into the model?
That's just one of the main disadvantages of value pricing, pricing the customer. And at Professional Pricing Society, for a long time, we thought that that was the trend, you're going to have individual prices for each customer. But the membership economy kind of blows that up and says no, no, make it transparent. Make it Netflix, and just let people use what they need. They're not going to abuse it, maybe 2% might use 20% of your resources, but you can price for that. You can actuarially price the portfolio. That's the other thing I love about this model and spread that risk amongst all of your customers.
You said something about the airlines that I just love, you said that they're an excellent example of an electric fence rather than a magnet. I love that. Do you think with the airlines, will we see any major carriers like United move to a subscription option, where you just pay them 50 grand a year and they fly you anywhere you need to go?
Do you think they should?
We've got less than a minute, Robbie, but just real quick, do you think this is easier to do for a company that's really focused? I mean, I'm thinking the difference between Coke and Pepsi. Pepsi is involved in food, and fast food, and all this stuff. But Coke just does beverages? It's much easier if you're focused, isn't it?
It's easier to put guardrails and it's easier to bake in those ala carte one-offs, all of that type of thing. Well, this is great. There's so much more I want to ask you about these books, because I really enjoyed both of them. I think they're both really great, very thought provoking pieces of work. So congratulations, and I know that The Forever Transaction came out this year, right? I think this is cutting edge. This is bleeding edge stuff. And that's, that's how we know it's a great idea. It scares people, right? Anytime you're out there scaring people, you know you've got a great idea.
Ed’s Questions: Segment Three
We are back with Robbie Kellman Baxter, author of The Membership Economy and The Forever Transaction. Robbie, I wanted to ask you about something that you said during an interview with Singularity University. You said, “In order to move to a subscription model, the company needs to have developed a competency in innovation.” And first of all, interesting verb tense. So that needs to have developed a competence in innovation, so is an innovative thinking style a prerequisite to the membership economy?
That's hysterical. One of the things I want to ask you about is, I know you've done some work with Netflix, and they are very tied into the fact that they have one choice. It's this, here's your choice, this is what you do. But I know that a lot of folks are saying, and when we teach value pricing, we have always talked about giving at least three choices to the customer. What is your thought with regard to subscription in regard to offering choices? And also, what have you learned about creating what we call fences between those choices, to make them optimized?
And what has been helpful with regard to more than one choice, about creating clear differentiation between those choices. One of the things that I see oftentimes is people don't have enough distinction between those choices, and I’m wondering if you had any thoughts or insights on that?
You brought up the all you can eat. In the Brazilian steak house, I'm always a fan of that the salad bar and the bread that they give you, which is absolutely delicious, that's just a diversionary tactic to get you not to have the meat. So avoid that. Don't let them distract you. I wanted to ask you about something that Tien Tzuo has written recently about, the author of the book Subscribed. He says that freemium is dead, and long live the free trial. Do you have any thoughts on that? Or, if you have that mindset now? Or are you still, freemium still has its place?
That's a great answer, and a great example. I love the way that you give the example of the meat, and all that, that was perfect. So I had a question. You talk a lot in your courses about ethics and trust being an important thing. And I'm going to put you on the spot here a little, I think. What about the ethics of the subscription model for, say, a pharmaceutical company? Should we be able to subscribe to say, Moderna, for early access to future vaccines?
Yes, I did. I only have one more minute with you. So I figured I had to go.
Sure. And the argument on the other side would be, is that if people are on a subscription, they're helping to fund future vaccine development.
I think that from the ethical side, my argument would be, well yeah I get early access, but I helped fund the development of the vaccine. Anyway, great answer. I know that was a sharp left, but I do really appreciate that. Yeah, it's a lot of fun to think about all of these different models.
Ron’s Questions: Fourth Segment
Welcome back, everybody. We're here with Robbie Kellman, Baxter, author of The Forever Transaction. And Robbie, you wrote something in here that I absolutely love and I find very incredibly thought provoking, especially for one of our VeraSage colleagues, Tim Williams, who works in the marketing and advertising space, as a consultant. You say a forever promise is different from a brand promise. How so?
It goes all the way back to the relationship, doesn't it, there's just something about putting the relationship at the center of the business. And I know you talk about this as being more than just a pricing model. It is a business model change. I'm kind of a student of business models. And I've learned two things about them. At least two things change when there's a new business model, the pricing strategy changes, you know, we go from buying CDs to buying 99¢ cents a song, and now we're subscribing, right? But the other change that always happens, and I can't find a single solitary exception to this, maybe you know one. But the other thing that changes is your dashboard. Your KPIs are completely different. Airbnb has a different dashboard than hotels, and Uber has different dashboard then taxicab companies. And you say, some companies think of themselves as product companies, we all say we're customer based and relationship based. But our measurements don't reflect it. Our measurements track transactions. So how important is changing those measurements internally?
I think a lot of even a lot of accountants don't understand the income statement for subscription business with that rolling forward of the annual recurring revenue, and the calculation of customer lifetime value, and all of those things. This is all new, and GAAP doesn't deal with this very well. And so a lot of companies need some help thinking about the metrics, because we're so used to that transactional mindset.
We interviewed Joseph Pine, he's the author of The Experience Economy [Episode #34], and his highest level of value is the transformation. And I just think this fits so beautifully with having a business model that puts the relationship at the center, because when you provide customers with transformations, the customer is the product.
What's higher than actually transforming the customer from where they are to where they want to be. You know, we try and keep track of every subscription based business, as I'm sure you do, and you probably do a better job than we do. It's inundating just how many things you can subscribe to, all sorts of things now. Has there been something recently that's really excited you or impressed you? I mean, I see Rome, where you can subscribe to houses, you can subscribe to a boat now from Brunswick with sailing lessons from a captain, and all this kind of stuff. Is there anything out there that you see that's really novel and new?
You have also started thinking about the Internet of Things. That's going to be just an effervescence of all this, isn't it?
The other thing you point out, and I love this, that many companies prioritize acquisition over retention. But that's a misplaced mindset. And we see this all the time, your cable company gives somebody six months free, and you've been a member for 15 years, and they give you nothing. How do you coach your people through that?
Awesome. Well, Robbie, this is great. Any new books in the works?
That's going to be in my feed. So I look forward to that.
Thank you so much, Robbie. This has been fantastic. We knew it would be, and congratulations on the books. They're really, really good, and we recommend them highly. So, Ed, what do we have coming up next week.
Ed Kless: Next week, Ron, we have Peter Robinson, host of Uncommon Knowledge.
Ron Baker: My hero, and the author of Ronald Reagan's “Mr. Gorbachev, tear down this wall” speech. I’m really looking forward to that. See you in 167 hours.
Bonus Content is Available As Well
Did you know that each week after our live show, Ron and Ed take to the microphone for a bonus show? Typically, this bonus show is an extension of the live show topic (sometimes even with the same guest) and a few other pieces of news, current events, or things that have caught our attention.
Click the “FANATIC” image to learn more about pricing and member benefits.
This week was Bonus episode 319 - “The C-19 vaccine and the FDA”. Here are some of the links we discussed: